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It is not a happy Easter time for most people. Opinion polls across the developed world show sharp dissatisfaction among voters. Even in the US, which has performed much better than Britain or Europe, people think the economy is doing worse than it already is.
And yet we end this first quarter with stock prices at or near record levels. In the US, performance has been excellent, with the S&P 500 index up more than 10 percent this year.
German and French shares have risen by similar amounts, and while the FTSE 100 index’s gain is only about 3 percent, it is at least within fighting distance of the all-time high of 8,012 reached in February last year.
There is no easy explanation for this gap, except perhaps to say that the pros are looking forward to a brighter summer, while the people will believe it when they see it. But this is a time for hope, so let me outline five areas where, if things turn out towards the more favorable end of the scale, that gap will narrow.
The first and most obvious is inflation. It’s falling everywhere, but given the abuse consumers have suffered over the past two years, we need to get that figure below 2 percent to change sentiment. As for Britain, it looks like we’ll get there in April or May.
On the way: According to the International Chamber of Shipping, there are more than 5,500 container ships on the high seas
Number two is the pace of interest rate cuts. This will be a global movement during the second half of the year, and it will be a completely new experience. We are used to interest rates falling because something has gone wrong: the coordinated declines after the banking crash in 2008 and the pandemic in 2020. Now they will fall because something has gone right: inflation has been defeated, or at least let it be hope So.
Third, there is growth. We just got confirmation that the economy fell in the second half of last year, the technical definition of recession. I expect the numbers will be revised in a few years to show that there is no recession after all, but the bigger point is that as inflation falls, real incomes rise and this feeds directly into consumption. So it will be consumer-led growth, and if we can see living standards rise, our mood will improve.
Fourth, I hope that the benefits of better financial conditions will flow through to the country as a whole. There is the specific issue of higher share prices showing up in people’s Isas, and also in pension pots. But there is also the broader issue of too much of the profits going to insiders, private equity houses, hedge funds and the like, and not enough to the masses of savers. That balance between public markets and private markets must be aimed at ordinary people.
Finally, a more general hope. It is that world leaders will realize that they must protect global trade. We don’t think about the extraordinary complexity of global supply chains until an event like the terrible accident at the Port of Baltimore reminds us of how dependent we are on goods shipped around the world.
Look at that stack of containers on the Dali – and it’s an average sized ship, not the largest. According to the International Chamber of Shipping, there are more than 5,500 container ships on the high seas.
But this is not just a matter of logistics, which generally works very well. It’s also a matter of regulation, and that’s where politicians have a huge responsibility to keep trade moving.
There is currently a silly row with Canada, which could impose a 6 percent duty on British cars shipped there, now that trade talks appear to have collapsed. That’s absurd. We are friends. Please sort it.
More broadly, the entire global trading system is under threat, with talks at the World Trade Organization meeting in Abu Dhabi a month ago descending into disarray.
And that is my greatest hope: that politicians realize how much damage they can do. Global trade is not a zero-sum game. Our prosperity depends on it.